Deutsche Bank troubles take world markets for a ride

A man walks past Deutsche Bank offices in London

FRANKFURT/LONDON — Deutsche Bank’s chief executive, John Cryan, sought to reassure his staff Friday that Germany’s largest lender remained robust after fears over its stability sent tremors through global financial markets.Deutsche, which employs around 100,000 people, has been engulfed by crisis after being handed a demand for up to $14 billion earlier in September from U.S. authorities for misselling mortgage-backed securities. The fines cast against the bank’s record losses have raised capital concerns and talks of a government rescue.In Spring 2016, Deutsche was one of several companies to publicly credit the controversial H.B. 2 legislation for a decision to abandon a planned expansion in the state. Though as early as February, Deutsche was already reeling from its worst quarterly loss in its history and undergoing a restructuring plan that saw it suspend its dividend and announce thousands in planned layoffs.Those problems have worsened, finding German government this week having to deny reports of a bailout in the works.Deutsche shares sank to a record low in Frankfurt Friday to below 10 euros before bouncing back to 10.96 euros by late afternoon. They have lost more than half their value this year and the bank’s market capitalization has fallen to $16.8 billion (15 billion euros).Trading volume in Deutsche’s debt has more than doubled this week and soared 15-fold in a month as investors rush to offload the troubled German lender’s bonds.People familiar with the matter had earlier told Reuters that one large hedge fund in Asia had pulled out collateral from Deutsche amounting to $50 million in the last two days, while other sources said this had happened elsewhere, albeit on a small scale.On Friday, Cryan sought to put the moves into perspective.”We should look at the complete picture,” Cryan said in the letter to the bank’s workers, adding that Deutsche had more than 20 million customers and reserves of more than 215 billion euros.”We are and remain a strong Deutsche Bank.”Global riskDeutsche has trading relationships with all of the world’s largest finance houses, and the International Monetary Fund this year identified it as a bigger potential risk to the wider financial system than any other global bank.Worries over a major bank in Europe’s largest economy and talk of a government rescue have stirred painful memories of the 2007-2009 financial crisis.Italy, the eurozone’s third largest economy, has their own banking troubles caused by soured loans, and Spain’s banking sector continues to face pressure. In a financial world that is still globally intermingled in trillions of complicated derivative investments, a failure of Deutsche could mean contagion worldwide a la Lehman Brothers, the U.S. investment bank whose collapse in 2008 sent shock waves around the world.The German government now faces a delicate balancing act with a deeper crisis for Deutsche potentially spilling over into Europe’s largest economy.The problems of Deutsche, once Germany’s flagship on Wall Street, are awkward for Berlin, which has berated many eurozone peers for economic mismanagement and pushed for countries such as Ireland and Greece to cope with their banking problems alone.Dutch finance minister Jeroen Dijsselbloem said Friday that Deutsche Bank must survive “on its own,” without assistance from the German state.Rate riskGerman banks have found their profits squeezed by the European Central Bank’s ultra-low interest rates and Commerzbank, the country’s second largest lender, is also cutting almost 10,000 jobs.Austrian finance minister Hans Joerg Schelling this week sought to play down fears over Deutsche, saying the case could not be compared with Lehman Brothers.Despite this and assurances from banking executives at Deutsche insisting the mounting losses are more than offset by its strong capital position, traders are inclined to sell first and ask questions later.”It doesn’t matter whether the bank is in real trouble or not, as long as people think it is, then it is bad news,” said Rabobank markets strategist Lyn Graham-Taylor.Reuters contributed to this report